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Cato Institute and Shareholders Reach Agreement in Principle

June 25, 2012

Media Contact: (202) 789-5200

The Cato Institute and its shareholders have reached an
agreement in principle that would resolve pending lawsuits filed by
Charles Koch and David Koch against Cato, its CEO, and several of
its directors.

Under terms of the agreement, Cato will no longer be a
stockholder corporation and John Allison (the former CEO of
BB&T) will be replacing Ed Crane, who will be retiring as
Cato’s CEO. That represents a compromise by which both sides will
achieve key objectives. For a majority of Cato’s directors, the
agreement confirms Cato’s independence and ensures that Cato is not
viewed as controlled by the Kochs. For Charles Koch and David Koch,
the agreement helps ensure that Cato will be a principled
organization that is effective in advancing a free society.

Earlier this year, Charles Koch and David Koch filed two
separate lawsuits seeking interpretation and enforcement of Cato’s
shareholders’ agreement. Prior to October 2011, Cato was owned by
four shareholders — Crane, Charles Koch, David Koch, and
William Niskanen. After Niskanen’s death in October 2011, the Kochs
maintained that the shareholders’ agreement left Cato with three
remaining shareholders (the Kochs and Crane). Crane and Niskanen’s
widow, Kathryn Washburn, challenged the shareholders’ agreement and
maintained that Ms. Washburn was the rightful owner of Niskanen’s
shares.

The parties will seek a stay of the court proceedings related to
that dispute after formal settlement documents have been prepared
and signed. Terms of the settlement include:

The Cato Institute will be governed by members rather than
shareholders. The members will be the directors of the Institute
and will elect their own successors. Initially, the Board will
include 12 long-term Cato directors, including David Koch. They
will be joined by three other Koch designees and Allison, who has
the option to nominate one or two additional directors. Charles
Koch, Crane, and Washburn will not be on the Board.

Crane, who co-founded the Institute with Charles Koch and
served as its CEO for 35 years, will retire within six months. He
will be succeeded by Allison, an expert on political philosophy and
public policy and a revered libertarian, admired and respected by
the Kochs and the Cato Board.

Crane will work with Allison during the transition period and
then serve as a consultant on fundraising and other matters.

On announcing the agreement in principle, Cato chairman Bob Levy
said: “This is the end of an era at Cato. From the Institute’s
inception, Ed Crane has played an indispensable role —
co-founding, managing and shaping it into one of the nation’s
leading research organizations.”

Crane extended his gratitude to Cato’s employees, directors, and
donors for their ongoing support. He welcomed Allison, whom he
described as “a great champion of liberty and an outstanding choice
to build on Cato’s success as the foremost non-partisan,
non-aligned, independent source of libertarian perspectives on
public policy.”

Allison said he was “happy to assist in resolving the pending
litigation and related issues,” and affirmed that his goal is “to
sustain Cato’s efforts at moving the country toward a freer and
more prosperous society.”

Charles Koch applauded the agreement. “I have every confidence
that John’s leadership will enable Cato to reach new levels of
effectiveness. The alarming increase in the size and scope of
government is undermining freedom, opportunity and prosperity for
all. Effective action is required to limit government to its proper
role.”